Over 12 years since the first loan on a peer-to-peer platform, the P2P and crowdfunding industry has expanded significantly. The key players are now recognised household names, and to many investors P2P looks like a smart alternative to low interest savings accounts.
The FCA also viewed peer-to-peer as a positive addition to the market place – enhancing competition, disrupting existing business models, and giving greater choice to consumers. The regulator facilited growth through their innovation hub and has supported nascent players through the regulatory sandbox.
But with increased growth, comes increased responsibility. And it is important for the peer-to-peer sector to recognise the particular challenges it faces from a compliance perspective. It serves customers both as borrowers and as investors so is subject to more than one of the FCA’s rulebooks. As well as treating customers fairly, they need to be transparent to investors and make sure their capital is protected.
FCA focus on peer-to-peer
Most P2P lending firms have taken to the regulatory environment well and delivered good outcomes for customers. There have been some concerns, however, and a couple of high profile failures. The FCA carried out a comprehensive consultation in 2018/19 and have identified issues for greater focus.
FCA is looking to improve a number of areas as the peer-to-peer industry grows:
- Clarify governance arrangements, systems and controls platforms
- Strengthen rules on wind-down plans
- Apply and clarify marketing restrictions
- Improve and appropriateness assessments
- Clarify minimum investor information
- Apply other regulatory rules which protect borrowers, for example from Mortgage Conduct of Business (MCOB)
- We expect the regulator will have more to say on recovery and resolution, prudential requirements and provision funds.
Helping peer-to-peer lenders at all stages of their lifecycle
We’re experts in FCA authorisation – and have helped over 500 firms get authorised over the last 20 years. We can work with you on your initial strategy and planning before approaching the FCA, and can support you along the FCA authorisation journey.
We can review your governance, both in terms of compliance with SM&CR, and in terms of long term systems and controls to protect your customers. The regulator has highlighted that under SM&CR they’ll consider the conduct of individuals in terms of their management of both their regulated and unregulated business. This could be particularly pertinent for senior managers in the P2P industry.
We have extensive experience helping investment managers with suitability and appropriateness. We can help you design and review your investor onboarding process, and make sure you’re investors are at the heart of your business.
Regulatory compliance for P2P firms
We can provide ongoing compliance advice and help with training, policies, compliance monitoring and anything else that crops up. With experience across financial services regulation, we understand the read across between the FCA’s rulebooks. We can understand both CONC and COBs and can help your compliance team navigate the regulatory landscape and see what’s on the horizon.
We work across the consumer credit sector and with banks and mortgage lenders. We can help with suitability assessments for new borrowers, both individuals and SMEs and we can also help you make sure your collections processes and procedures are fair and effective.
We have a team of experts in the FCA’s CASS rules around holding client money and assets. The FCA are particularly interested in firms’ controls of client money in the peer-to-peer sector.
Recovery and resolution
With a couple of high-profile collapses, the FCA is particularly concerned about effective recovery and resolution in P2P. Given the innovative nature of the sector, controls are not always as mature as they need to be. Wind down planning is particularly important. Both from a regulatory and commercial perspective it is vital your investors have the confidence that they are protected in the event of the worst case scenario. We have a specialist prudential team that can help in this area.
Preventing financial crime in P2P
Preventing Financial Crime is a continuing focus across all financial services, particularly in newer, more innovative sectors. Firms should be able to demonstrate that their onboarding processes are effective, and they are preventing money laundering and potential fraud. We have a large team of financial crime specialists who can provide advice and support in this area.